When the new tax law was passed, a few provisions were of great concern. We at Boothe Appraisals,Valuations, Environmentals are concerned that higher and higher tax burdens transferred from the federal government by the new tax law to local communities and individuals might eventually have a negative impact on value and appeal of some properties.
- One was a provision that would eliminate the tax exempt status of municipal bonds, because thousands of projects for roads, civic centers, schools, prisons, court houses, bridges and hospitals have in the past been financed by issuance of bonds with a tax-free status. Many city and state leaders cried out and tried to educate our elected officials as to the potential harm that this provision of the new law would cause. This provision would essentially increase taxes for towns, cities, schools and many individuals. This would force local towns and counties to increase taxes.
- Another problem, the elimination of local taxes as a deductible item, would essentially increase the tax rates for individual, middle-class people by hundreds of millions of dollars. Again, this would force a higher tax rate on all who file itemized deductions, again dinging the pocket books of millions of middle-class and average American tax payers.
- The third problem attacks an American dream. "Work hard, and someday you can buy that beautiful dream house," our fathers once said. But now under this new tax law, that dream may become even harder to achieve. The new tax law that our elected officials passed last year, included a feature that put a cap of $10,000 per year of interest expense that is deductible on home mortgages. As inflation increases home values, the interest deduction will be ever more important to allow many people to afford a home, and the people who live on the West Coast, the East Coast or many of the affluent areas of Houston, Atlanta, Minnesota, Dallas-Fort Worth, Albuquerque, Scottsdale, Seattle, Chicago, Austin, Denver, and a hundred other cities will be impacted. If one cannot afford a house because local tax deductions are now gone and deductible mortgage interest above $10,000 is now gone, then some people may opt to forget the dream of that house and just move to high rise condominiums with lease purchase plans. If you have a home mortgage of say $620,000 and your interest rate is 8.3 percent, you have already exceeded the threshold that is deductible. If you have a house worth $900,000 and your interest rate is 8.3 percent, you are paying $74,700 in interest. Thus you have lost $24,700 in deductions, increasing your income tax and making the overall cost of having a house that much higher. Because of this, many people have transferred their homes into business ownership or restructured and made their homes their business address. But the sad part is that many in Washington, D.C. seem to want to eliminate the interest for mortgage interest altogether.
No doubt many of these items will be reviewed again in the next few years, and we are hopeful that the federal government and our elected leaders will stop dumping more and more tax burdens on the American people and making local towns, cities, schools and counties raise taxes and carry more and more taxes, and that the American homeowners who have worked hard to achieve success will not be punished more by eliminating mortgage interest deductions.
Partly because of the restructuring of many homes into business locations, we are seeing an increase in the cost of houses, especially on the high end. Note the following graphic that we observed on the internet, credited to Redfin, and also utilized by the New York Times. It shows that houses are becoming more expensive.
These are the trends of median sales prices of homes in high-cost metro areas.
We can only hope to bring this subject up forcefully and with great zeal, and we know the American people will be eager to revisit tax issues, and lower some of these onerous tax provisions.
More to come on this later, stay tuned to: BootheGlobalPerspectives.com